The following is a rush transcript of the October 4, 2009, edition of "FOX News Sunday With Chris Wallace." This copy may not be in its final form and may be updated.

BRET BAIER, GUEST HOST: With Afghanistan and Iran dominating foreign policy concerns, we turn to four key senators for their insights on how best the U.S. should move forward — from South Carolina, Republican Lindsey Graham; from Scranton, Pennsylvania, Democrat Bob Casey; and here in studio are Evan Bayh, a Democrat from Indiana; and Saxby Chambliss, a Republican from Georgia.

Senators, welcome to you all.

Let's get right to Iran where we have seen some significant developments overnight. Senators, the front page of The New York Times this morning has this story, "Report Says Iran has Data to Make a Nuclear Bomb."

This is about a confidential analysis by the International Atomic Energy Agency, the IAEA. The Times writes, quote, "Most dramatically, the report says the agency assesses that Iran has sufficient information to be able to design and produce a workable implosion nuclear device based on highly enriched uranium."

These excerpts also suggest that Iran has done much research and testing to perfect nuclear arms, like making high-voltage detonators, firing test explosives and designing warheads.

We should point out the Times is following up on some of the reporting by the Associated Press and other sites on this secret IAEA report.

So, Senators, your thought on this report and how or should it factor into the negotiations with Iran.

Senator Graham first.

SEN. LINDSEY GRAHAM, R-S.C.: Oh, absolutely. I think one of the things that we'd want to do is challenge the Iranians to give us some access to what's alleged in this report.

Clearly, they're not developing a nuclear program for peaceable purposes. This report is just yet more evidence in a long line of evidence that the Iranians are trying to develop a nuclear weapon, and half measures won't work.

We need to get on with challenging the Iranians with some deadlines and ultimatums, quite frankly.

BAIER: Senator Casey? Senator Casey?

No, we'll turn to Senator Bayh first. Your thought on this report and...

SEN. EVAN BAYH, D-IND.: Well, Bret, it shows that we need to bring a real sense of urgency to this issue. The clock is running, and the Iranians will have a nuclear capability before long if something doesn't happen to change their minds.

So we need to have tough sanctions, financial and economic. We need to do them now. Have real deadlines and consequences if they don't live up to their word, because they have lied repeatedly in the past.

But you know, we are on a path toward a nuclear Iran which is an unacceptable course. If we're going to avoid the very painful dilemma of either having to live with that or taking military action to prevent that, which may ultimately be a choice we have to face, we need to act now on the financial and economic side.

BAIER: Senator Chambliss, has the administration taken the right point of view here?

SEN. SAXBY CHAMBLISS, R-GA.: Well, I think so. Obviously, there have been some significant high-level discussions both with our allies as well as beginning talks with Iran right now. So I think the administration realizes the seriousness of this.

And when you combine, Bret, the revelations relative to the knowledge that Iran has concerning the manufacture of a weapon with the fact that we now have publicly disclosed the other facility in Iran at Qom where, for the last several months, we've been monitoring their operations — and that is not a facility where the Iranians are going to be manufacturing enriched uranium for nuclear power purposes.

It's not big enough. They don't have enough centrifuges for that. So it's pretty clear that Iran is headed down the track of getting a nuclear weapon. They have the knowledge. They now have a secret facility that's been disclosed.

What else do they have? I think that's the question the administration needs to ask.

BAIER: Senator Casey, the head of the IAEA, Mohamed ElBaradei, arrived in Tehran on Saturday to arrange this inspection of the facility that Senator Chambliss mentioned in Qom, near the holy city of Qom.

He announced at a news conference this morning that Iran has agreed to let inspectors in there on October 25th. That is three weeks, not two weeks, from now, as the president forecast. He also said that Iran has agreed to, quote, "in principle" allow some of its low enriched uranium to be transported out of the country to Russia or France to be enriched to higher levels for nuclear fuel.

So the president has called these talks a constructive beginning. How do you see these talks?

SEN. BOB CASEY, D-PA.: Well, what we heard this week was certainly encouraging, but I think we have to be very focused on giving the president and giving other parts of our government, including pension funds, the ability to impose sanctions.

We should not have to allow the talks to be an end in themselves. That's why I and others have supported legislation that I know my colleagues support to provide a broad range of sanctions.

And in particular, Senator Brownback and I have legislation to allow pension funds to divest — or I should say to allow pension fund entities around the country to divest pension fund assets out of companies that are doing business with Iran's energy sector, up to a $20 million level.

So I think it's critically important that we have all of the tools on the table to impose sanctions, even unilaterally if necessary.

BAIER: Should the Senate move forward now?

CASEY: Oh, I think we should. We should at least give the president all of the — all of the tools he needs to impose sanctions if he needs to act.

And certainly, pension funds and any other entity that wants to help us on this should be given that authority, which they don't have now under federal law.

So, look. I'm glad that we're talking, but we cannot allow talking and negotiation to replace strong action if we feel we have to take that step, in addition to the international efforts that we've undertaken within the Security Council or other ways. We should have as many options on the table as possible.

BAIER: The president specifically touted this move to move low enriched uranium out of Iran when he talked about these talks in his comments.

But here's what the Associated Press wrote about this on Friday, quote, "President Barack Obama noted the deal in the comments on the meeting, but Mehdi Saffare, Iran's ambassador to Britain and a member of the Iranian delegation at the talks, told the Associated Press the issue had not been discussed yet. Asked if Iran had accepted, he replied, 'No, no.'"

Senator Bayh, do you believe the Iranians are negotiating in good faith over their nuclear program?

BAYH: Absolutely not, Bret. I mean, they have a pattern of deception. They have a pattern of breaking agreements that they agree to. This may be a further example of that.

They respect strength and strength alone. They're contemptuous of weakness. So having this dialogue is good, but you've got to hold them to their word. What matters ultimately is not what they say but what they do.

So will they allow the inspections to go forward? Will they actually send the uranium out of the country? What about other hidden facilities they may have? That's why we need to tee up all of these sanctions to raise the cost of misbehavior so that hopefully they'll change their mind.

But taking them at their word — absolutely not. I'm afraid they're running the clock on us — is what they're really doing.

BAIER: But how long does the administration have?

BAYH: Well, I think we need to give them a matter of weeks to come clean on the inspections, to actually send the uranium out of the country. I think, you know, we've got to have firm deadlines, the sooner the better, and real consequences if those deadlines aren't met.

BAIER: Senator Graham?

GRAHAM: Well, I couldn't agree more with my Democratic colleagues. I think they've got it exactly right. What I would like to have is a session in the Senate, maybe a couple, three days, "Iran Week," where we pass Evan Bayh's sanction proposal regarding refined petroleum, where the president would have tools to sanction companies that provide refined petroleum to Iran.

I've got a bill with Senator Schumer restricting — sanctioning companies who provide cyber assistance to the Iranian government to oppress their own people. Radio Farsi, Radio — the Voice of America needs to be enhanced.

I would like to see the Congress in a defined period of time the next couple of weeks pass a series of measures that would empower the president and our country to be tough and to put some actions behind words. So let's have "Iran Week" in the Senate and get something done. I totally agree with him.

BAIER: In the latest Fox News/Opinion Dynamics poll, 77 percent of those surveyed are worried about Iran developing nuclear weapons, and almost 70 percent in that poll said President Obama is not tough enough on Iran.

Senator Chambliss, do you think he's being tough enough?

CHAMBLISS: Well, what I was hoping that President Obama would do here in these recent talks with our allies was to go ahead and promote the — putting in sanctions now against Iran.

Evan's bill is a great bill. It's the right direction in which we need to go. And rather than saying, "If you don't stop what you're doing, we're going to impose sanctions" — we've been lied to enough by Iran.

And I would hope what the president would do — would take a bolder step, go ahead and let's impose sanctions. Let's get our allies together and say, "This is what we're going to do. Now, if you want us to ease those sanctions off, then you need to come clean on your weapons program and tell us what's going on."

I think just continuing the dialogue with them and threatening them with sanctions — if the president's going to take that attitude, I don't think we're going to get anywhere with that.

BAIER: Senator Casey, do you agree with your colleagues that the Senate should move forward, that Congress should move forward, even ahead of the administration's ability to impose sanctions on a world stage?

CASEY: Oh, absolutely. I believe that when we have these measures in front of the Senate, Senator Bayh's bill, the bill that Senator Brownback and I have on pension funds, as well as what Senator Graham mentioned — every possible option should be on the table here.

And I think that gives the administration the ability to have a broad range of choices here, and that's what we want to make sure. We want to make sure that at the appropriate time, if sanctions have to be imposed, that they can be imposed swiftly, with consequences, and not have some indefinite time line here that will allow them to continue to lie to the international community as they've done time and again.

BAIER: Senator Graham, last thing on Iran. What is your thought about the Israelis and their possible timetable of acting unilaterally, possibly before even the end of the year, if it continues this way with Iran?

GRAHAM: I think an Israeli attack on Iran is a nightmare for the world, because it will rally the Arab world around Iran, and they're not aligned now. It's too much pressure to put on Israel.

Let's go down the sanction road, as my colleagues have indicated. Military action should be the last resort anyone looks at. And I would rather that our allies and us take military action if it's necessary.

And let me say this. Only if it's necessary, but if sanctions fail and Iran's going down the road to get a nuclear weapon, every Sunni Arab state that could would want a nuclear weapon. Israel will be more imperiled. The world will change dramatically for the worse.

And if we use military action against Iran, we should not only go after their nuclear facilities. We should destroy their ability to make conventional war. They should have no planes that can fly and no ships that can float.

If you go down that road, knock them out conventionally as well as their nuclear programs. But that would be a last resort, and I don't want Israel to have to have that burden. That's not the best way to do it.

BAIER: But the Israelis say what's the timetable, what's the time line. How long should we wait?

GRAHAM: Well, here's what I — act first. See what actions have — what effect they'll have on Iran. The Iranian people very much are against this regime. Let's empower the Iranian people and isolate the regime.

Let's do what my colleagues have said on this show, have a series of votes in the United States Senate and the House in the next two weeks to give our president tools to impose meaningful sanctions on Iran. If they change their behavior, we can back off.

But do all of this in the next few weeks. Do that before you even consider military action. But take military action before they get a weapon. So I don't know how much time we have left. But I know that all this talking's not working.

They did the same deal with the Europeans in 2007. They said, "You can have our low enriched uranium. The Russians can have it." They backed out then. I don't believe a thing Iran says. I want them to act. Then I'll believe it.

CHAMBLISS: Bret, the problem with military action also is that you're probably not going to be able to stop the production of uranium by just a simple air strike. Lindsey's right. It's an all or nothing deal.

And is it worth that at this point in time when we know they have the capability? We can slow them down, but a full-out military strike is what it would take.

BAIER: Senator Casey, your thoughts on a timetable. How long does Iran have?

CASEY: Well, it has to be a reasonable length of time to allow some of these discussions that have already taken place to develop. But there's no reason why you can't have, on one track, a parallel track of talks, but also parallel tracks for sanctions and moving forward.

I think Senator Graham made an important point that I should have made earlier, and that's that there is a huge difference here between the regime and the people. We saw a stirring in the hearts of the Iranian people this summer. That country has changed forever.

Now, we may not see people on the streets demonstrating today, and I know that television cameras aren't documenting that, necessarily. But behind closed doors, on the ground, in their homes, in their communities, there are a lot of Iranians who want change, a lot of Iranians who, frankly, identify with the United States.

And we have to continually be aware of not just how we talk about the regime being different from the people, but also making sure that sanctions that we impose don't hit the people who are trying to free themselves from a regime or at least have some degree of a change in policy in that country. So it's an important point to keep the two separate.

BAIER: Senators, let's turn now to Afghanistan. This morning we have sad news that eight American soldiers were killed in eastern Afghanistan after what is being described as a complex Taliban attack on two American outposts.

General Stanley McChrystal, the commander of U.S. and NATO forces in Afghanistan, calls the situation in that country serious. He says in his military judgment it is deteriorating.

Now, privately, senior civilian and military officials say that McChrystal wants up to 40,000 more U.S. troops in the country. Senators, should the president fulfill that request?

Senator Bayh?

BAYH: Bret, unfortunately, there are no easy answers in Afghanistan. The ideal situation would be a stronger central government with more troops and police capable of controlling its own territory.

If we have a realistic chance of achieving that, and more troops are necessary to achieving that, I would support that decision. But there's a real question, given the lack of history in that country of a strong central government — it's riddled by corruption and incompetence today — about whether that ultimate goal is achievable or not.

And that ultimately is what we have to answer, not whether we're devoted to solving this problem, but whether the Afghans can do their part. So I would support the request if that's what the president decides.

But I think there's a — also a decent case to be made that perhaps the Afghans just can't do their part, in which case a different strategy would be in order.

BAIER: Senator Graham?

GRAHAM: Well, the one thing I can tell you for sure, without reinforcing our troops, you're going to hear more of what happened today. General McChrystal said without reinforcements we cannot change the momentum that the Taliban has achieved, and the insurgency cannot be defeated in a year if something doesn't change.

We had this very dilemma in Iraq. We didn't have enough troops. Everybody thought Maliki was a sectarian prime minister. The country wasn't governing itself. The security environment became terrible.

The one thing I can tell you, if we don't add more troops, you're going to see more of what happened yesterday. The security situation's going to get worse. And any hope of better governance is lost, and the Taliban will re-emerge.

If you send troops in, we'll have a second chance at governance. You need to put Karzai's feet to the fire, or the next government's feet to the fire, to do a better job. But it's impossible to bring about better governance without security.

And what we have in place now is not going to work. General McChrystal tells us that. He needs reinforcements. And I hope the president will send them and let us all work together for better governance, because the Taliban are going to win if we don't change course soon.

BAIER: Senator Casey, Wednesday the president met in the national — with his national security team in the situation room with all the major players about this decision.

Here's what the Washington Post wrote about that meeting. "Vice President Biden offered some of the more pointed challenges to McChrystal, who attended the session by video link from Kabul. Biden has argued against increasing the number of U.S. combat troops in Afghanistan. He favors preserving the current force levels, stepping up Predator drone strikes on Al Qaida leaders and increasing training for afghan forces."

Now, Thursday at London's Institute for Strategic Studies, General McChrystal was asked directly whether he thought limiting — a limited counterterrorism effort in Afghanistan would work. Here's what he said.


GEN. STANLEY MCCHRYSTAL: The short, glib answer is no. You have to navigate from where you are, not from where you wish you were. A strategy that does not leave Afghanistan in a stable position is probably a short- sighted strategy.


BAIER: Senator Casey, what do you make of this very public rift between Vice President Biden and General McChrystal?

CASEY: Well, first of all, I think it's vastly overdramatized. If you read the stories about General McChrystal's presentation, he talked about debate and deliberation. And despite what we're hearing in Washington, to move in the next couple of days or the next two weeks, I think the president's doing the right thing.

He's doing what General McChrystal recommended in terms of taking time to review this, and he's doing what the American people would expect him to do as president. There'll be debates within the administration. There'll be debates in Congress. That's a good thing.

It shouldn't be indefinite in terms of a time frame. But the best thing we should do — we cannot make the same mistakes that our government made in Iraq, and one of the mistakes we can't make is putting the resource and troop question before the strategy question.

We have to continue to debate, not just pointing a finger at the administration. The Congress has a role to play here, and the Senate. We've got to debate what the strategy should be and get that right before we talk about what the resources should be.

And if it's as simple as saying whatever General McChrystal wants in any format, I think we're going to miss the boat. This is much more complicated than just reacting to a part of his recommendation.

A lot of what General McChrystal has recommended involves the non- military aspects of this. And he understands how difficult it is to get a counterinsurgency strategy right. And a lot of that is non- military. I think we should thoroughly review his report and question him.

But also, we need to question the strategy overall and make sure we get it right. It might be that we...

BAIER: So, Senator Casey, let me ask you...

CASEY: ... that the Congress reaches a point on — that we recommend a more focused counterinsurgency strategy, or some will say just counterterrorism. But I think we need a full debate, not just a political debate, as we often had with regard to the war in Iraq.

BAIER: All right, Senator Casey. So you think it's possible, after the description of that meeting and this rift, if you will, that President Obama could possibly disregard the advice, the request of the general that he installed in Afghanistan, General McChrystal.

CASEY: No, I don't think he's going to disregard any part of that report. I think he's using that report as the foundation of a discussion about strategy.

But that doesn't mean there's not going to be debate within the administration. Debate is good. But I don't buy the idea that there's some kind of rift between General McChrystal and parts of the administration.

There will be debates, but it's important that the Congress is as focused on strategy before resources as the administration is.

BAYH: Just two quick things, Bret. It's not uncommon that there's diversity of opinion on issues as complex as what to do about Afghanistan, and there may be no good answer there, unfortunately. That may be the truth at this point.

But it's also not uncommon where a commander in chief will have some differences of opinion with some of his generals. Abraham Lincoln did with some of his generals during the Civil War, most notably George B. McClellan.

Harry Truman had a big difference of opinion with Douglas MacArthur. Even George Bush had a difference of opinion with General Casey about whether to have the surge in Iraq.

So this is to be expected. And your lead-in posed the question, "Do we need more troops or do we need a different strategy?" It's possible the answer may be yes and yes, more troops in the short term to try and build up their capacity, to stabilize the country as best we can, although it will always be an imperfect place, and then pivot to more of a counterterrorism strategy a couple years down the road once we've accomplished that. That may be the bottom line here.

BAIER: Senator Chambliss?

CHAMBLISS: Well, Bret, when you have a military commander on the ground, a guy who is not only an expert in the situation relative to Afghanistan but is a strong military leader hand-picked by the president to lead the effort in Afghanistan, I think you've got to go with him.

You've got to go with the detailed study that he has made. And you have to remember that what General McChrystal is recommending is really twofold. Certainly, more troops are going to be necessary to secure the peace in Afghanistan and stop the violence.

But as Bob Casey just said, we've also got to have a civilian component to this issue if we're going to resolve this complex situation that Evan noted earlier that exists in Afghanistan.

But if we're going to have those civilians to be able to come in and try to educate and train the Afghanis, then we've got to have the security necessary to allow them to do that. So I think it's imperative that we listen to the commander on the ground.

BAIER: Senator Graham, the administration continues to say that they have time, that we shouldn't rush this decision. How much time do they have? And how do you think it will come out?

GRAHAM: Well, I don't know how it's going to come out, but I can say this without any equivocation. A counterterrorism strategy, if adopted, would be the biggest strategic blunder post-9/11.

It would result in the Taliban taking over all or part of Afghanistan. It would result in the whole region wondering who America is. Pakistan, which is doing a good job against their insurgency, would be undercut. You cannot fight these people from a distance.

In March the president said we have to defeat the Taliban and we have to make sure Al Qaida has no safe haven. So I hope that this deliberation, which — I understand this is a tough decision — doesn't go on so long that it becomes indecision.

General McChrystal said within a year, if we don't change the momentum on the ground, we could lose our ability to defeat the insurgency. A counterinsurgency strategy properly resourced is our best way to go forward.

Half measures will not only lead to a defeat in Afghanistan, it will affect our ability to change Iran. Iran is watching us. If we're indecisive about what to do in Afghanistan as an American or a coalition group, then they're going to take what we do in Iran less seriously.

So the president has a window of time here to seriously deliberate, but it's running out. And what you saw yesterday is exactly what awaits this country. Our troops cannot change momentum. They're sitting ducks. They need to be reinforced.

And I can't guarantee what will happen with more troops, but if we don't reinforce them, I can guarantee you what will happen. We will lose in Afghanistan. That's what's at stake.

BAIER: This is what your colleague Senator John McCain said about how the administration is handling General McChrystal. Take a listen:


SEN. JOHN MCCAIN, R-ARIZ.: So it's OK with the administration for General McChrystal to go on "60 Minutes." It's OK for him to give a speech at the Institute for Strategic Studies in London. But the administration does not want General McChrystal and General Petraeus before the Senate Armed Services Committee. How does that work?


BAIER: Senator Casey, how does that work? Do you share Senator McCain's concerns, if not his passion, about General McChrystal briefing Congress?

CASEY: Well, when I mentioned before that we need to have a debate in Congress, John's one of the voices we should listen to, and take the measure of what — Lindsey Graham and John McCain and Joe Lieberman wrote a piece in the Wall Street Journal recently.

That's part of what we should debate, what was the focus of their column in the Wall Street Journal, as well as other points of view.

On the question of who should appear before the Armed Services Committee — I'm on the Foreign Relations Committee — or any committee, in time I think we're going to have lots of opportunities to question General McChrystal, to question maybe other administration officials as well. There's a whole long list.

BAIER: Sure, but the...

CASEY: But I don't think we have...

BAIER: ... senator is saying that...

CASEY: ... to do this this week.

BAIER: ... he's out on...

CASEY: I think part...

BAIER: ... "60 Minutes" and he's out at this London foreign policy group...

CASEY: Sure.

BAIER: ... and he still — and he hasn't even briefed behind closed doors the senators and House members.

CASEY: Well, let's be fair. When President Bush made a determination about a surge in Iraq, he made a decision. Then we got to see General McChrystal months later. I think the same should happen here.

We should — the president should have access to all the information he needs, as well as have the Congress have a debate. But this debate is not going to end the minute that — the minute that the president allows people within the administration to come to Capitol Hill.

We've already had months and months of hearings. We've got to continue that. One thing we should do, though — let me add this quickly - - is that we should have a debate in Congress about what is the fastest and most effective way to get the Afghan army and the Afghan national police up to a level where they can provide security and take on the enemy.

I think that debate alone is critical to getting this right. We can have long debates about how many troops should be there, but a lot of the parts of this debate haven't taken place yet in the Congress.

BAIER: OK. A couple of quick topics before we wrap up here. On the economy, the unemployment rate now stands at 9.8 percent, the highest in 26 years. More than 15 million Americans are out of work.

Former Fed chair Alan Greenspan is saying that he believes it will push past 10 percent and stay there for a while. Obama administration officials said when they were pitching the stimulus package they didn't think it was going to get past 8 percent.

Senator Bayh, at the time of the stimulus package passage, you said of the $787 billion price tag, quote, "We all respect the president's number. It has to be big enough to really provide a jolt to the economy and create jobs." Do you think the stimulus has provided a jolt to the economy and created jobs?

BAYH: I think things would have been worse without the stimulus bill, Bret, that's true. But having said that, of course, it's not satisfying to see that things continue to be a lot worse than any of us would like.

You have to remember that I think a good percentage of the jobs bill hasn't even gone into effect yet. So, look. If I'd been drafting the package, I would have tried to have it go into effect sooner and have more of it directly related to jobs.

But it is what it is at this point. It continues to go into the economic bloodstream and to keep things, which — as unsatisfying as they are, from being a whole lot worse. So the answer — that's a long answer saying yes, but I wish it could have done more.

BAIER: Senator Graham, quickly, this week you talked about base politics. You mentioned Glenn Beck, who, of course, is on Fox News Channel, and you said he does not appear to you to be aligned with any party but he's aligned with cynicism...

GRAHAM: Right.

BAIER: ... and there's always a market for cynicism. Are you saying that Glenn Beck is bad for America?

GRAHAM: No, I'm not saying he's bad for America. You've got the freedom to watch him if you choose. He did a pretty good job on ACORN. What I am saying — he doesn't represent the Republican Party. You can listen to him if you like.

I choose not to because, quite frankly, I don't — I don't want to go down the road of thinking our best days are behind us. We need to act decisively. People are genuinely upset with how much money we're spending up here.

But at the end of the day, when a person says he represents conservatism and that the country's better off with Barack Obama than John McCain, that sort of ends the debate for me as to how much more I'm going to listen.

So he has a right to say what he wants to say. In my view, it's not — it's not the kind of political analysis that I buy into.

BAIER: Senators, thank you all for being with us this morning and sharing your views on obviously a wide range of topics. Thank you.

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